A Bargaining Model of Holdouts and Takings
The holdout problem is commonly cited as the justification for eminent domain, but the nature of the problem is not well understood. This paper models the holdout problem in a bargaining framework, where a developer seeks to acquire several parcels of land for a large-scale development. We show that in the absence of eminent domain, holdouts are inevitable, threatening costly delay. However, if the developer has the power to use eminent domain to acquire the land from holdouts, all sellers will bargain, thus avoiding delay. An offsetting cost is that owners may negotiate prices below their true value, possibly resulting in excessive transfer of land to the developer.
|Date of creation:||Jun 2006|
|Date of revision:||Mar 2007|
|Note:||We acknowledge the comments of participants at the Takings Conference at the University of California, Santa Barbara, May 12-13, 2006.|
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- Hermalin, Benjamin E, 1995. "An Economic Analysis of Takings," Journal of Law, Economics and Organization, Oxford University Press, vol. 11(1), pages 64-86, April.
- Blume, Lawrence & Rubinfeld, Daniel L & Shapiro, Perry, 1984. "The Taking of Land: When Should Compensation Be Paid?," The Quarterly Journal of Economics, MIT Press, vol. 99(1), pages 71-92, February.
- Cohen, Lloyd, 1991. "Holdouts and Free Riders," The Journal of Legal Studies, University of Chicago Press, vol. 20(2), pages 351-62, June.
- Menezes, Flavio Marques & Pitchford, Rohan, 2001. "Chasing Patents," Economics Working Papers (Ensaios Economicos da EPGE) 411, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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